Having enjoyed an exceptionally-strong December month’s returns – a classic “Santa Claus rally” – investors returned to the unsettling news that on 2 January, the key military figure in the Iranian regime, General Qasem Soleimani and important Iran-linked militia leaders in Iraq has been killed by a US missile strike near Baghdad airport. This development was surprising at the time, but must be seen in the context of 2019’s intensification in tension between pro-Iranian militias in the Gulf region and western governments attempting to stabilize Iraq and keep oil channels open. Various incidents going back to the attacks on oil tankers last June and including the recent assault on the US Baghdad embassy form a continuum of escalation, which until recently investors were largely ignoring.

Given the impulsive nature of President Trump’s announcements, the current pre-impeachment Congressional manoeuvrings and the fact that 2020 is a US election year, investors naturally feared that the targeted assassination of Soleimani is a forerunner of a major renewed campaign in the Gulf. There is no doubt of considerable dissatisfaction with the state of nuclear anti-proliferation initiatives, and unresolved Syrian and Iraqi factionalism, added to which is Israel’s influence with Washington and the recent re-instalment of Benjamin Netanyahu as Israel’s hard-line Prime Minister.

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